The "value effect" refers to the tendency of stocks that are considered undervalued to outperform those that are overvalued over time. Investors often look for companies with low price-to-earnings ratios or strong fundamentals that are not reflected in their current stock prices. This strategy is based on the belief that the market will eventually recognize the true value of these companies. This phenomenon is often contrasted with the "growth effect," where stocks of companies expected to grow at an above-average rate are favored. The value effect suggests that investing in value stocks can lead to higher returns, especially during market downturns when investors seek safer, undervalued options.